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    EBA Report Examines MREL Shortfall Among Banks in EU

    May 27, 2021

    EBA published the second quantitative report on minimum requirements for own funds and eligible liabilities (MREL) under the new methodology. The report aims to take stock of the increase in MREL capacity in EU‐27. It reflects the existing MREL policies applicable as at December 2019 and estimates the impact of the revised Bank Recovery and Resolution Directive (BRRD2) only for global systemically important institutions (G-SIIs) and top-tier banks via the subordination levels. The report shows that, as of December 2019, the largest institutions have made good progress in reducing MREL shortfalls and that smaller institutions tend to lag behind.

    The report shows that an estimated 80% of the domestic assets in EU are covered by a strategy other than liquidation—stable compared to 80% last year on a comparable basis. Although the level of covered assets remained stable on a yearly basis, the amount of decisions has increased and new decisions are expected to be issued in the near future. EBA received a total of 265 decisions relating to banks where resolution, by either a bail‐in or a transfer, would be favored rather than liquidation. This increase in the number of decisions reflects the continued progress by resolution authorities in agreeing on resolution strategies and setting MREL, but also highlights that more than six years after the adoption of BRRD, authorities are still in the process of rolling-out resolution strategies and MREL requirements.

    Out of the 265 decisions, 27 have been left out of the shortfall analysis on the basis of data quality issues. As at December 2019, out of the 238 resolution groups captured in this report, 111 EU resolution groups showed an MREL shortfall estimated at EUR 102 billion, down from EUR 172 billion as of December 2018. In terms of total assets, institutions with a shortfall represent about 28% of total domestic assets in EU. The report shows that MREL shortfall for EU G‐SIIs is down significantly to EUR 19 billion, with high levels of other marketable securities. The decrease in shortfall is less pronounced for other systemically important institutions (O‐SIIs) than for G‐SIIs, while high levels of other marketable securities are observable only for top-tier banks. The bulk of the decrease is due to G‐SIIs now exhibiting a shortfall of EUR 19 billion, compared to EUR 51 billion last year. The sharp decline reflects that, to some extent, G‐SIIs have been setting their requirements before other banks and that they are facing earlier end‐state dates for compliance in line with total loss absorbing capacity (TLAC). The shortfall for O‐SIIs is down from EUR 104 billion to EUR 64 billion. This is reflective of the effort by O‐SIIs in issuing MREL-eligible debt.

    The report is based on data as of December 31, 2019 provided by resolution authorities and covers the actual population of banks covered by an MREL decision, the actual level of this requirement, and the level of resources effectively eligible in the relevant jurisdictions. The report is intended to offer information on the resilience of the European banking system through loss‐absorbing capacity and to offer update on the progress of authorities in setting resolution strategies and MREL across EU. BRRD2 was adopted in July 2019 and resolution authorities have now started to take new decisions reflecting the revised framework. These decisions will be reported to EBA starting as of May 31, 2021 and EBA will update on the progress by year-end. This report will be updated annually, in line with the mandate in BRRD Article 45l(1). Going forward, EBA is also expected to examine the impact of MREL on profitability of banks, with EBA planning to deliver an impact assessment report to EC by December 2022. 


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    Keywords: Europe, EU, Banking, MREL, BRRD, TLAC, BRRD, Regulatory Capital, Basel, Resolution Framework, Systemic Risk, EBA

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